How to Create Passive Income with Real Estate?

Passive income is one of the many efficient ways to ensure yourself an early retirement if done right. In short, it stands for an income that you don’t have to work for or simply put mere 5% of the effort you would usually do if you worked regularly. How can someone get into a passive income state and breathe a little easier? By investing; “smart” and “patient” are the names of the game. Most common forms of passive income are either investment in stocks or real estate. Stock passive income comes in the form of managing and following the rise and fall of the stock market, making sure you don’t miss that single hour in which your stock grows and you can sell it for a turn-around. Real estate passive income on the other hand provides a much more stable and efficient way of retiring early. How?

Real Estate v. Stock Market

First thing’s first; why would you invest in real estate instead of stock? For the simple reason that real estate, once properly set-up and on its way, provides a steady influx of revenue on a monthly basis. Stock on the other hand, doesn’t, requiring you to work your way through the market and play a buy/sell game looking for a good opportunity. As we can surmise, real estate is a much more viable solution, although it does take more time to manage and isn’t 100% passive since it includes maintaining the properties.

The how-to

So what are some concrete steps you can take in making sure you’re good to go on passive income by investing in real estate? First of all, you have to put yourself in the shoes of your future tenants; think of where and how you’d like to rent an apartment/house for yourself. It’s important to realize that most families or couples are looking for a permanent rental residence so your investments need to be carefully planned to satisfy all of their needs.

Co-investment

This is as passive as it gets, so we’ll look at it right away. By investing in another person that wants to start a rental service though buying real estate, you’re ensuring yourself a turn-around without much work up into it. You’re the investor in this case, and once you hand over your money, your job is done. All it takes now is to wait for your investor to make progress and house first tenants. Simple enough? Not quite. It could take a long time for the investment to pay out and sometimes it just doesn’t and falls flat on its face because of bad decisions (see below) or plain bad luck; in which case your money is most likely gone. Be smart about it and think about investing by yourself instead of a proxy.

Location

Make sure that you’re on the look-out for specific city blocks and neighborhoods that house the type of tenants you would like to have in your residences. Is it the suburbs, the downtown, or maybe the outskirts of town? Each of your potential tenants and revenue sources has specific requirements, and it’s up to you to plan ahead.

Patience

Real estate, much like stock, grows and falls in price all the time. Try making a list of all the places you’d like to invest in and wait. Keep a careful eye on them and look for ways to buy it off for lower than market price. Contact the owner; perhaps they are willing to barter? Overspending from the get-go will get you nowhere, so it’s important to keep an eye out for emergency, last-minute sales that automatically save you a percentage of the price you’d usually pay.

Budgeting

Once you get your hands on your first properties you’ll probably want to refurbish them and get them to a proper state of rental. Make sure you decide the exact budget you want to spend on repairs, since it’s easy to lose yourself and overspend. Go from top to bottom, roof to basement and make sure there aren’t any red flags that would turn off potential tenants.

Management

Once the property is rented, the hard part is over and your first cash influx arrives. If you want to make the passive income more passive, you can try hiring an external property manager or two (depending on the number of real estates) to manage the properties and tenants for you, for a small fee on a monthly basis. You won’t feel the fee as much if you have more properties under you (for example, two properties bring in 400$ a month each and the management fee is 50$; 2×50$ = 100$ of the 800 you made). This is a viable option for those looking for an early retirement or is actually retired and wants some peace and rest instead of spending time on managing real estate; it can get tiring.

It takes effort and patience, especially until you get your hands on your first passive income, but once you actually do, you’ll realize that it was worth it. It’s a great way to retire early and receive a steady income just as if you were working full-time, and for many that are a selling point right there. Just make sure you plan carefully and don’t overspend; mistakes happen, but when working with large sums of money, those mistakes hurt us more often than not. Given some time, by reading through the tips and tricks listed above, you should be on a good way of making that first passive revenue and retiring early.

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